﻿November’s blog article will take a break from the financial markets and discuss the current real estate market, with a focus on Westchester, NY and New York City. We had the chance to interview Jeremy Zucker of Keller Williams Realty, who was named a “Five Star” real estate agent by Westchester Magazine in each of 2010-2014, a designation that less than 7% of agents earn in any given year. Jeremy provided Downtown Investment Advisory (DIA) with his insider knowledge which we have summarized below.﻿ In terms of the overall health of the market, which observers often like to peg as either a “buyer’s” or “seller’s” market, the sense was that the market was neither, with “balanced” a better description. Arguments could be made why conditions favored sellers and point to rising prices, and arguments could be made opposing this view. The median selling price for all single family homes in Westchester in Q3 2014 was $682,500, nearly matching the peak of $685,000 reached in early 2007. It has taken seven years for prices to creep back up—although on an inflation adjusted basis prices are still significantly down. Note that there is typically wide variation among this median depending on market and home specifics. Total Westchester home sales are flat year-to-date in 2014 versus 2013 levels, following several years of consecutive growth. 2013 total sales of $4.4 billion is far below peak activity of $5.4 billion in 2005. One sign pointing to a stronger market is that the final sales price for homes is coming in at 97% of the final list price compared to weaker markets where the figure settles at 93%-95%. In some of the more attractive markets 1/3 of homes were sold at or above the asking price during Q3 2014. Jeremy notes that inventory is low at less than six months of supply, and anecdotally there are many frustrated buyers having trouble finding appealing homes within their price range. All of these factors favor a seller’s market.On the opposite side, many homes which have not sold over the summer, which likely did not appeal to many buyers, are experiencing price reductions, often more than once. With new inventory listed after Labor Day, homes that did not sell over the summer had to lower prices to compete with the new listings. A key factor limiting price gains is stricter availability of mortgages, and bank appraisals which are coming in at conservative valuations. Home price gains in the past two years have exceeded the growth in personal income, which further limits the outlook for price gains. Although inventory remains tight, this factor alone is not enough to materially push up prices. These factors generally favor a buyer’s market. A trend that seemed to be on the increase was a stronger desire by buyers to purchase move-in ready homes, with less tolerance for homes that need work. Good school districts remain in strong demand, but this is not unique to today’s market. We compared some of the information on Westchester to the Manhattan market and noticed similarities. Median sales price trends in Manhattan, and as can be seen in the chart below, are similar to Westchester, with median prices up from their lows but still below the peak. The market summary for Manhattan provided by Douglas Elliman also mirrors Westchester. The Elliman report notes that the Manhattan housing market “is best characterized as having record low inventory, heavy sales volume, but only modest price growth” – which we read as being a “balanced” market, not obviously favoring either side.

We also looked at the well-regarded S&P/Case Shiller Index, which is considered a reliable measurement of the changes in existing home values. The index shows that the New York City market is still far below its peak in in early-2006 by about 17%. The New York City market has basically been flat for the past four years, although up about 7% in the past year. The index seems to match the “balanced” view of the market – meaning that prices are holding, but there are no catalysts for significant upward price movements.S&P/Case-Shiller New York City Home Price Index

A recent report by the National Association of Realtors showed that the percentage of homes sold to first-time homebuyers dropped to 33% in 2014, the lowest percentage in almost three decades (40% is typical). Key factors for this drop, despite record low mortgage rates, were incomes that were not keeping up with rising home prices and heavy student debt loads. This may be a secular trend that could have a long term negative impact on home prices.

Jeremy’s key advice to sellers was that the initial pricing decision was critical to a successful home sale. Specifically, that overpricing with the theory that it will leave plenty of room to negotiate may backfire. Given the incredible amount of information available today on-line on home prices and sales activity, active markets like Westchester are efficient and prices tend to converge to actual value. Overpricing can cause buyers to reject a home, as the buyer may not realize that there is significant room to negotiate. Therefore sellers may be missing out on potential buyers by overpricing. In an efficient market like Westchester, and for most of the NY area, pricing a house close to actual value is the recommended tactic. For buyers the advice is the corollary: make bids, even if they seem far below asking price, for homes that may seem out of range. At minimum, it will provide buyers with information on the market and test sellers on where they stand with their asking prices.Jeremy can be reached at 917-549-5296 or at jeremy@jeremyzucker.com

Note that this article was written to provide information and education, and is not intended to be considered investment advice, which can only be provided by DIA following a consultation and execution of an Investment Advisory Contract.

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